Has Binance Monopolized Cryptocurrency?

Binance needs to play defense to hold up the entire crypto market, as the sole market maker, everything would collapse without Binance...
by Yoaquim Boom
June 18, 2023

In today's newsletter, we delve into the underlying complexities of transferring funds from Binance to other platforms amidst the current issues at Binance. As an avid observer of the cryptocurrency market, I believe it is crucial to understand the intricate web of relationships within the ecosystem, particularly when it comes to Binance's role.

Moving your funds may be futile, here's why...

Potential Implications of Binance's Downfall on Cryptocurrencies

Binance, as one of the leading cryptocurrency exchanges, holds immense influence over the liquidity of various digital assets. In fact, they are one of the sole liquidity providers & the majority holder of 100s of crypto projects.

Its potential downfall could send shockwaves through the entire system, impacting not only the exchange itself but also the stability of cryptocurrencies and the crucial market makers that rely on them.

The repercussions of a compromised Binance extend beyond its direct users. Cryptocurrencies tied to specific values, such as stablecoins, would face significant challenges in maintaining stability if the exchange falters.

This, in turn, could trigger a domino effect across the entire cryptocurrency system, leading to situations akin to the recent turmoil experienced by LUNA—a scenario that is difficult to fathom, yet cannot be dismissed.

It is essential to note that not all coins need to maintain a one-to-one peg to be at risk. Even those with soft pegs, exposed through stablecoin liquidity, could experience a margin call followed by a severe value wipeout.

So, what indicators should we be monitoring? Pay close attention to the price and volume of Binance's native token, BNB.

Significant trading activity revolving around the $200 BNBUSD price point, coupled with evident actions taken by the Binance plunge protection team (commonly referred to as the "CZ" defense), signify mounting pressure.

As we have discussed before, CZ, Binance's CEO, tends to avoid playing defense immediately. However, if the value continues to be eroded, he may have no choice but to intervene, which he has certainly done before.

Allow me to draw a parallel to a past event for better comprehension. Recall when Caroline inadvertently revealed the floor price for FTT, thereby inadvertently signing FTX's own death warrant?

Similarly, CZ is confronted with a similar floor price situation concerning BNB and, to some extent, BTC.

The potential consequences of a depreciating BNB collateral are dire, as it could incite chaos throughout the market, reaching a magnitude akin to the collapse of FTT but on a nuclear level.

Therefore, the issue at hand goes beyond merely moving your coins to safer locations. This situation has the potential to trigger a value wipeout that transcends successful coin transfers.

It could reverberate throughout the entire crypto space, akin to the scale witnessed during the infamous 2011 Mt. Gox event or potentially surpassing it.

Let us not underestimate the magnitude of this potential event. Its scale far surpasses that of FTX, whose market-making influence pales in comparison to that of Binance.

Binance is the major market maker in the crypto industry, it has, in essence, a monopoly on liquidity.

It is worth highlighting that Binance and CZ, to a large extent, represent the market now. Therefore, dismantling them would inadvertently lead to a collapse within the market, aligning with the regulators' objectives.

In terms of potential outcomes, the worst-case scenario would entail a Binance collapse resulting in a return to pre-2017 price levels, with approximately 90% of altcoins disappearing indefinitely.

A more moderate outcome, even if CZ successfully defends against mounting challenges, would see the United States successfully removing crypto from the mainstream, relegating it to a niche space operating outside the realms of traditional culture and society, with little to no institutional interest.

On a brighter note, the best-case scenario would involve the SEC losing their court case against CZ, and crypto not seeing immense depreciation.

This outcome would preserve the status quo, allowing the crypto industry to triumph and utilize the verdict to legitimize its space, thus integrating crypto into mainstream society for years to come.

Blackrock's application for a Bitcoin (crypto) ETF will further add to the confidence in the space.

It is worth noting that CZ had foreseen this situation coming. Back in January, he astutely converted billions of BUSD, anticipating the storm that lay ahead.

In conclusion, CZ finds himself walking a precarious tightrope. He must defend the price of BNB without compromising the value of BTC and subsequently the entire market.

This delicate balancing act shares similarities with DoKwon's (LUNA Founder) position but on a vastly different scale.

Stay tuned for further updates as we navigate this pivotal moment in the cryptocurrency landscape.